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Rod Smith

Investigators: Mirage Execs Aware IRS Violation

17 December 2003

LAS VEGAS -- State investigators found at least nine executives of The Mirage were aware of and did nothing to correct the failure to file 15,000 required anti-money laundering forms with the IRS from 2001 to 2003, criminal discovery files made public Tuesday show.

"Several Mirage executives were aware of the violations throughout the 18-month time period, failed to independently determine the extent of the violations, and failed to report the violations to the Gaming Control Board and the IRS," Gaming Control Board chief enforcement officer Keith Copher determined in his investigative report to top regulators March 25.

The report also found there was a breakdown in company and government auditing procedures used to catch deficiencies in the filings, which are used to track large cash transactions by individuals in casinos.

"Not only was there a breakdown in management, there was also a failure within the internal audit department who conducted six Regulation 6A audits during the 18-month period The Mirage was in violation," the Gaming Control Board report said.

"This (noncompliance with government regulations) also went undetected by independent accounting firms," Copher said in the report.

Copher on Tuesday declined to elaborate on the findings of his investigation documented in the report.

However, Gaming Control Board Chairman Dennis Neilander said his agency, as a result of problems at The Mirage, which federal and state regulators both missed, will make changes in Regulation 6A procedures as early as January to make sure similar failures are caught by regulators in the future.

The Gaming Control Board had notified The Mirage in December 2002 it was conducting a periodic audit of its Regulation 6A reporting compliance, and was told Feb. 5 that 15,000 so-called CTRC-N reports had not been filed since May 2001, aborting the audit, the report shows.

"It appears a good organization was being extremely sloppy and unprofessional in its accounting practices," University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said Tuesday.

The control board launched an investigation Feb. 10 into The Mirage's failure to file the currency transaction reports over an 84-week period period, resulting in a $5 million civil fine against the company in June and the criminal prosecution of compliance manager Christopher Morishita, who was handed a three-year probationary sentence earlier this month.

The investigation leading to the fine and indictment lasted seven weeks and more than 20 company executives were questioned, including Mirage Resorts Chief Executive Officer Bobby Baldwin and Mirage President Bill McBeath, Neilander said.

The interrogations seem to have also included all executives in the chain of command between Morishita and Mirage Chief Financial Officer Bob Kocienski, who reported to McBeath.

Morishita told investigators he did not file the reports because he was having personal problems and was behind in his work. Morishita later told investigators the importance of filing the reports had never been explained to him, that he had been having relationship problems, that he had experienced staff turnover which had put the filings behind schedule and that he had been denied staff to catch up.

Morishita, who was promoted to a supervisory position in the newly created 6A compliance office and got a pay raise to $10.80, or about $20,000 a year, said his supervisors, first casino controller Brian Burtenshaw and later Scott Torman, his successor, paid little or no attention to his work or his warnings.

At UNLV, Thompson said: "If he said he didn't know why they were important and he was given the task of doing the job and paid $10 an hour and it led to a $5 million fine, it certainly was an administrative screw-up and it qualifies as being a new chapter in the college textbook `Management Mistakes.' "

The subsequent Gaming Control Board investigation confirmed the staff turnover and supervision deficiencies, and implied they were critical to the break down of Morishita's operation.

Nevertheless, throughout the 84-week period during which his office filed none of the required forms with the IRS or the Treasury Department's Financial Crimes Enforcement Network, Morishita and his staff were given superlative performance evaluations, and Morishita consistently got top grades and comments on his training verification forms.

Not only did internal audits fail to detect the problem, the network to which the reports should have been sent, and the Gaming Control Board, which can access filings electronically, failed to detect the nonfilings.

The Financial Crimes Enforcement Network was notified of the situation by the control board on Feb. 11, and has had conversations with the state of Nevada concerning taking overall federal responsibility for the filings, but otherwise has taken no action.

Torman told investigators there were "no checks or balances" in the network's process to make sure reports were filed, and an internal Mirage auditor said it appeared to the company that Morishita had receipts for the filings.

However, he said for all the network's records were worth, Morishita could have been mailing greeting cards and no one would have known the difference. Officials at the federal network could not be reached for comment.

Neilander said the Gaming Control Board is in discussions with Financial Crime Enforcement Network officials about revising Regulation 6A reporting requirements at the federal as well as the state level to prevent any future oversight failures.

MGM Mirage spokesman Alan Feldman said any comment on the state investigation should be left to the responsible public officials.

However, at the end of February, The Mirage organized a "Best Practices Committee" to develop an audit program to prohibit these violations from recurring, the Gaming Control Board report said.

Further, it said once Mirage management discovered the filing failures violation on Feb. 5, it moved quickly to complete remedial action to bring the filings up to date and discipline responsible employees, nine of whom were terminated.